Right On: Republicans raise taxes on the wealthy, Democrats hyperventilate

January 31, 2018 Utah Channel 3

OPINION — So who is the party of the middle class?

Democrats spend every waking moment reminding voters that they are the party of the little guy, the middle class, while calling Republicans corporate fat cats.

When Republicans passed their recent tax reform – no Democrats voted for it – Nancy Pelosi loudly proclaimed employees would receive only “crumbs,” that only big business would reap a windfall.

As of last Friday noon, 263 companies had promised their employees bonuses, raises, 401k contributions or a combination of the three that will start showing up in paychecks this month. And many companies are making multi-million dollar or even billion dollar investments in new plants and equipment.

Trying to salvage some way to find fault with the new Republican law, Democrats are now hyperventilating about higher taxes on the wealthy. Take a moment and read that last sentence again: Democrats are hyperventilating about higher taxes on the wealthy.

The Republican tax reform limits the state and local tax deduction to $10,000 per year while before there was no limit. When taxpayers deduct state and local taxes, sometimes referred to as the SALT deduction, from their income, it reduces their federal income tax.

Over 90 percent of those who will lose some of their deduction have incomes in excess of $100,000. This hasn’t prevented leading Democrats from taking up their cause.

New York Gov. Andrew Cuomo calls the Republican tax reform a “war on blue states.” Democratic senators representing the 10 states with the highest per capita state and local taxes have echoed Cuomo, denouncing tax reform’s impact on their wealthy taxpayers.

Can’t these Democrats see their hypocrisy in defending the rich? Just last year Bernie Sanders was claiming these same folks weren’t paying their fair share.

Democrats are howling now because in states they control, tax-and-spend politics have made state and local taxes a runaway train. Take California as an example.

California’s top income tax rate is 13.3 percent. Folks paying this top rate – think Silicon Valley and Hollywood –also pay the top federal tax rate of 37.9 percent. Add to that some of the highest property taxes in the country.

For these high-income Californians, federal income tax is reduced by 37.9 percent of their state and local taxes. This discount made it all too easy for California Democrats to raise state and local taxes in the past. Why not? The rest of the country had to make up the difference.

Limiting the deduction has caused some soul searching among more thoughtful Democratic politicians.

When he introduced his 2018-19 budget proposal, California Gov. Jerry Brown said, “People with higher incomes pay a lot more money and some of them may be tempted to leave.”

The Sacramento Bee reports:

Democratic state lawmakers are worried because California relies so heavily on the income taxes it collects from high earners to fund government services. The state’s wealthiest 1 percent, for instance, pay 48 percent of its income tax, and the departure of just a few families could lead to a noticeable hit to state general fund revenue.

Do the math. California will collect over $90 billion in personal income tax this fiscal year, about $45 billion from its 1 percent. These taxpayers will avoid over $17 billion in 2017 federal income tax. Add in their property taxes and they’ll avoid billions more.

Somehow I find it hard to feel sorry for these high income Californians, especially since the rest of us have been subsidizing their $17 billion tax break.

California’s dilemma applies to all high tax states. New York’s 1 percent pay 40 percent of its $40 billion in income taxes. Average property taxes in New York’s Westchester County are $10,000.

New York and other high-tax states will either have to find ways to reduce their tax burdens or lose wealthy taxpayers to lower tax states.

Do blue states have a fairness argument?

Democrats point out, correctly, that blue states pay more in federal taxes than they receive in federal spending. They argue that the new tax law unfairly increases this imbalance.

Blue states pay more federal income tax because most blue states have above-average per capita incomes and are home to a disproportionate share of the nation’s 1 percent.

Instead of complaining, Democrats should be thanking Republicans for tackling two liberal policy goals.

First, Republicans lowered the federal tax rate for high-income taxpayers with the right hand but raised their taxes with the left hand by limiting the deduction for state and local taxes. How this nets out for any one high-income taxpayer depends on the state; for many, their federal tax bill will actually go up. But since income tax rates were reduced for the rest of us, the overall effect is to make federal taxes even more progressive, a longstanding liberal policy goal.

Second, Democrats should be telling blue state taxpayers to feel good about their contribution toward reducing income inequality across the country, another liberal policy goal.

So what’s the real reason Democrats are complaining? They’re pandering to their wealthy campaign contributors by railing against state and local tax deduction limits. The rest of us are tired of supporting their spendthrift habits.

If you’re one of those who will lose some of your state and local tax deduction on your federal return this year, don’t expect any sympathy from me. You can afford it.

Forget the $10,000 limit. Republicans should have eliminated it.

Howard Sierer is an opinion columnist for St. George News. The opinions stated in this article are his own and may not be representative of St. George News.

Email: hsierer@stgeorgeutah.com

Twitter: @STGnews